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Establishing Strategic

Pay Plans

Chapter 6-1

11

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Learning Objectives1. Define competency-based pay.

2. Explain the reasons for using the competency-based pay.

3. Explain the difference between competency-based and traditional pay plans.

Chapter 6-2

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Explain the difference between competency-based

and traditional pay plans.

Chapter 6-3

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Competency-based pay

Competency-based pay What is it? Why use it? In practice The bottom line

Chapter 6-4

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Competency-based pay

Competency-based pay means the company pays for the employee’s range, depth, and types of skills and knowledge, rather than for the job responsibilities or title he or she holds.

Also called as knowledge-based pay and skill-based pay.

Chapter 10-5

Competencies

Competencies are demonstrable personal characteristics such as knowledge, skills, and persona; behavior such as leadership.

Why pay employees based on the skills levels they achieve, rather than based on the jobs they are assigned to?

This to encourage employees to get and to use skills required to rotate among jobs.

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Reasons of using Competency-based pay

To ensure employees are enthusiastic about learning and moving into other jobs.

To enhance strategic plans by paying for skills that are critical to those plans.

Measurable skills, knowledge, and competencies are important for performance management processes.

This approach is designed to motivate employees to become aspirational, build on their existing skills and apply these in their job.

Chapter 10-7

Other Reasons:

Serves as a motivational tool It reinforces a culture of self-improvement It improve staff retention It encourages corporate transparency

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4 Components:

1)system that defines skills and processes;

2)training system; 3)competency testing system; and

4)work design that allows employees to move among jobs.

Chapter 10-9

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Differences between traditional system and competency-based pay

Traditional – ties the worker’s pay to the worth of the job based on the job description and duties. Pay is job oriented.

Competency-based pay – ties the worker’s pay to his/her competencies. Pay is person oriented.

Chapter 10

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Example:

Professional Pay Systems

Certain professional jobs in an organization call for special compensation systems. This is determined by the nature of the job and the labor market for these skills.

The End